Investors might want to look away from the A2 Milk Company Ltd (ASX: A2M) share price. Shares in the dairy company have been red for almost every single day since March 4. At the time of writing, the A2 Milk share price is trading at $7.88, up 0.9%.
How A2 Milk went sour
After multiple earnings downgrades and rising geopolitical tensions between Australia and China, the A2 Milk share price looks like it has slumped to the point of no return. Its shares are down ~10.6% in March. Additionally, the share price is down ~32% year-to-date.
Are brokers still positive on A2 Milk?
Big brokers are still divided on the growth trajectory and recovery path for A2 Milk. There have been two broker notes in March with a diverging buy and sell rating.
First came the UBS note on 4 March. This retained a buy rating and a NZ$16.00 target price for the dual-listed company. The broker expects a meaningful recovery in indirect infant formula sales in the next two years. In addition, the broker expects substantial market share gains for its China label infant nutrition. The note also highlighted that online brand strength remains strong in China with high WeChat engagement.
The A2 Milk share price is currently fetching NZ$8.61 on the NZX. This represents an upside of 85.8% from the broker’s target price.
The Citi note on 23 March seems to be giving the optimistic UBS a run for its money. The broker retained a sell rating and a $7.15 target price.
Citi has paid close attention to Feihe – the largest and most highly recognised Chinese infant milk formula company with a reported 17.20% market share in Q3 2020. The broker believes that competition is likely to intensify for foreign infant formula players like A2. It believes the expansion of the market share of Chinese brands is likely to drag A2’s growth. The A2 Milk share price would need to fall another 9.50% to reach Citi’s target price.
Commonwealth Bank of Australia (ASX: CBA) reduces its stake
While brokers might still be divided on where the A2 Milk share price will go next. CBA announced on 23 March that it had reduced its stake in A2 Milk from 46.9 million shares or 6.34% of the company to 39.5 million shares or 5.32%. Luckily for CBA, the A2 Milk share price has slumped another 6% since.
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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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